Guanxi is a Chinese word the means “relationships”, and is a central concept in the way Chinese do business. If you want to do business effectively in China you will need guanxi. Why is guanxi so important? A business person with guanxi has a wide network of contacts that he or she can call upon to get things done. This is especially important in China where the communist government has hands-on involvement in many aspects of business, including such critical areas as licensing and taxation. You don’t have to be doing business in China for very long before you will witness guanxi at work, be it with overcoming bureaucratic hurdles, expanding a business, or resolving issues with suppliers.

The rapidly growing Chinese economy has been producing thousands of new millionaires and a key attribute held by many of them is a strong network of contacts, and the ability to use these contacts effectively. A good example of this is Hong Kong billionaire Li Ka-shing who used his guanxi to secure necessary permits for his real estate deals. It is important to note that guanxi is a reciprocal relationship — it works both ways. While you can impose upon your contacts to do favors for you, you will also be expected to do favors for them when necessary. There is an element of implied trust. Also note that guanxi is not strictly a business relationship. There is a personal element to it and it helps if the two parties genuinely like each other.

Fortunately, Chinese business people are very open to expanding their business networks and making new contacts. Unfortunately, guanxi cannot be developed over the telephone or by email. These relationships must be built face to face, often outside of business hours. Many good business relationships have been forged late in the evening in restaurants or karaoke bars. But perhaps the best place to forge these relationships is in business schools, particularly MBA programs.